UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

-----------------------

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from ______ to ______

Commission File Number 0-25032
------------------------------

UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)

DELAWARE 25-1724540
(State or other jurisdiction of (IRS employer
incorporation or organization) Identification No.)

600 Mayer Street
Bridgeville, PA 15017
(Address of principal executive offices, including zip code)

(412) 257-7600
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:

Title of Class
--------------
Common Stock, par value $.001 per share

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 26, 1999, based on the closing price of $6.00 per share on
that date, was $15,427,566. For the purposes of this disclosure only, the
registrant has assumed that its directors, executive officers, and beneficial
owners of 5% or more of the registrant's Common Stock are the affiliates of the
registrant.

As of March 26, 1999, there were 6,320,036 shares of the Registrant's Common
Stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's Annual Report to Stockholders for the year ended
December 31, 1998, and definitive Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held May 25, 1999, are incorporated by reference
into Parts II and III of this Form 10-K.

TABLE OF CONTENTS

PART I

Item 1. Business................................................................ 1
Item 2. Properties.............................................................. 8
Item 3. Legal Proceedings....................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders..................... 11

PART II

Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters 11
Item 6. Selected Financial Data................................................. 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.................................................... 12
Item 7A. Quantitative and Qualitative Disclosures About Market Risks............. 12
Item 8. Financial Statements and Supplementary Data............................. 12
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure............................................. 12

PART III

Item 10. Directors and Executive Officers of the Company......................... 13
Item 11. Executive Compensation.................................................. 13
Item 12. Security Ownership of Certain Beneficial Owners and Management.......... 13
Item 13. Certain Relationships and Related Transactions.......................... 13

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........ 14

PART I

ITEM 1. BUSINESS

General

Universal Stainless & Alloy Products, Inc. (the "Company"), which was
incorporated in 1994, manufactures and markets semi-finished and finished
specialty steel products, including stainless steel, tool steel and certain
other alloyed steels. The Company's products are sold to rerollers, forgers,
service centers and original equipment manufacturers. The Company's products
are further processed by its customers for use primarily in the heavy equipment
manufacturing, power generation and aerospace industries. The Company also
provides conversion services on materials supplied by customers that lack
certain of the Company's production facilities or that are subject to their own
capacity constraints.

The Company's products are manufactured in a wide variety of grades, widths and
gauges in response to customer specifications. The Company is capable of
producing specialty steel products that include long products (ingots, blooms,
billets and bars), which are primarily used by customers to produce bar, rod and
wire, and flat rolled products (slabs and plates), which are used by customers
to produce fine-gauge plate, sheet and strip products. The Company also
produces customized shapes that are cold rolled from purchased coiled strip,
flat bar or extruded bar at its Precision Rolled Products department ("PRP").

Industry Overview

The specialty steel industry is a relatively small but distinct segment of the
overall steel industry. Specialty steels include stainless steels, high speed
and tool steels, electrical steels, high temperature alloys, magnetic alloys and
electronic alloys. Specialty steels are made with a high alloy content, which
enables their use in environments that demand exceptional hardness, toughness,
strength and resistance to heat, corrosion or abrasion, or combinations thereof.
Specialty steels generally must conform to more demanding customer
specifications for consistency, straightness and surface finish than carbon
steels.

The Company primarily manufactures stainless steel, tool steel and certain other
alloyed steels, including:

Stainless Steel. Stainless steel, which represents the largest part of the
specialty steel market, contains elements such as nickel, chrome and molybdenum
that give it unique qualities of resistance to rust, corrosion and heat, high
strength, good wear characteristics, natural attractiveness and ease of
maintenance. Stainless steel is used, among other applications, in the
automotive, aircraft and aerospace industries and in the manufacture of food
handling, chemical processing, pollution control and medical and health
equipment. The large number of applications for stainless steel has resulted in
the development of a greater variety of stainless steel metallurgical grades
than carbon steel.

Tool Steel. Tool steels contain elements of manganese, silicon, chrome and
molybdenum to produce specific hardness characteristics that enable them to
form, cut, shape and shear other materials in the manufacturing process. These
hardness characteristics are brought out by heating and cooling at precise rates
in the heat treating process. Tool steels are utilized in the manufacture of
metals, plastics, pharmaceuticals, electronics, optics and paper and aluminum
extrusions.

High Temperature Alloy Steel. These steels are designed to meet critical
requirements of heat resistance and structural integrity. They generally have a
very high nickel content relative to other types of specialty steels. High
temperature alloy steels are manufactured for use generally in the aerospace
industry.

High Strength Low Alloy Steel. High strength low alloy steel is a relative term
that refers to those steels that maintain alloying elements that range in
versatility. The alloy element of such steels as nickel, chrome and molybdenum
typically exceed the alloy element of carbon steel but not that of high
temperature alloy steel.

Net sales by principal product line were as follows (dollars in thousands):

Year ended December 31, 1998 1997 1996
---- ---- ----

Stainless steel $53,661,000 $60,700,000 $46,903,000
Tool steel 7,548,000 10,467,000 8,019,000
High-temperature alloy steel 4,387,000 2,636,000 728,000
Conversion service 3,690,000 4,834,000 3,804,000
Other 3,309,000 2,664,000 804,000
----------- ----------- -----------
$72,595,000 $81,301,000 $60,258,000
----------- ----------- -----------

Raw Materials

Scrap Metal

The Company's major raw material is ferrous scrap metal, which is generated
principally from industrial, automotive, demolition and railroad sources and is
purchased in the open market through a number of scrap brokers and dealers or by
direct purchase. The Company purchases approximately 80% of its scrap metal
from three principal domestic suppliers. The long-term demand for scrap metal
and its importance to the domestic specialty steel industry may be expected to
increase as steelmakers continue to expand scrap metal-based electric furnace
capacity with additions to or replacements of existing integrated specialty
steel manufacturing facilities that use iron ore, coke and limestone as their
raw materials. The high quality of the Company's products requires use of
premium grades of scrap metal, the supply of which is more limited. The Company
has not experienced difficulty to date in purchasing adequate scrap metal for
its production processes. The Company believes that adequate supplies of scrap
metal will continue to be available in sufficient quantities for the foreseeable
future.

Alloys

The Company purchases various materials for use as alloy additions, some of
which come from Canada (principally nickel) and other foreign countries.
Certain of those alloys (principally chrome) are supplied by South African
manufacturers and any political disruptions in that country could interfere with
the delivery of those materials.

PRP Starting Materials

PRP's principal starting materials consist of metallic flat bar, extruded "near
shaped" bar and coiled strip, which the Company cold rolls to customer
specification to produce special shapes. The Company generally purchases those
starting materials from steel strip coil suppliers, extruders, flat rolled
producers and service centers. The Company believes that adequate supplies of
starting material for PRP will continue to be available in sufficient quantities
for the foreseeable future.

The cost of raw material is approximately 45% of the Company's total cost of
products sold. Raw material prices vary based on numerous factors, including
quality, and are subject to frequent market fluctuations and future prices
cannot be predicted with any degree of certainty. Therefore, the Company does
not maintain any long-term written agreements with any of its raw material
suppliers. The Company has established arrangements with certain raw material
suppliers that permit the Company to purchase certain raw materials at set
prices for up to 30 days, which may protect the Company against short-term price
increases in raw materials after it has agreed to manufacture products for its
customers at specified prices, which reflect those set raw material prices.

Customers

The Company's principal customers are rerollers, forgers, service centers and
original equipment manufacturers, which primarily include the power generation
and aerospace industries. For the year ended December 31, 1998, Talley Metals
Technology, Inc., a subsidiary of Carpenter Technology Corporation, and its
affiliates accounted for 35% of the Company's net sales. No other customer
accounted for more than 10% of the Company's net sales for the year ended
December 31, 1998. The Company's five largest customers in the aggregate
accounted for approximately 57% of net sales. A principal element of the
Company's business strategy is to seek new customers so that over time it will
reduce its dependence on one or a small number of customers. The Company's
customer base increased from 167 at December 31, 1997 to 200 at December 31,
1998.

The Company's products are marketed directly to its customers by Company
personnel, including the Company's President and Chief Executive Officer, its
PRP General Manager, five full-time sales persons and two independent sales
representatives. In view of the relatively small number of prospective
customers for the Company's customized products, the strong business
relationships with its customers and the thorough product knowledge and
substantial experience with actual and prospective customers of those management
and marketing persons, the Company believes its sales force is adequate for its
current and immediately foreseeable needs.

Backlog

The Company manufactures products to meet specific customer orders, generally
fulfilling orders in eight weeks or less, and consequently does not manufacture
for inventory purposes. The Company's backlog of orders on hand as of December
31, 1998, was approximately $10.8 million as compared to $20.9 million at the
same time in 1997. The decrease in backlog of orders on hand as of December 31,
1998 as compared to December 31, 1997 primarily resulted from increased import
levels and lower selling prices due to competition. Customer orders are
generally subject to cancellation with the payment of a penalty charge prior to
delivery. The Company's backlog may not be indicative of actual sales and
therefore should not be used as a measure of future revenue.

Competition

The Company believes itself to be one of approximately 20 domestic manufacturers
that produce specialty steel and one of approximately five domestic specialty
steel manufacturers that produce special shapes. Of that number of firms that
produce specialty steel, the Company believes five companies currently compete
within the Company's selected markets, although other specialty steel mills have
the capability of producing, and hence competing with, some of or all the
Company's specialty steel products.

Major competitors of the Company in the specialty steel market include fully
integrated specialty steel producers such as Allegheny-Teledyne, Inc.; Carpenter
Technology Corporation; AL Tech Specialty Steel Corporation; Slater Steels
Corporation; and The Timken Company. Although Electralloy, a subsidiary of G.O.
Carlson Inc., and First Mississippi Steels, Inc. generally produce only
stainless steel ingots, they can also compete with the Company by utilizing
outside conversion services. Additionally, there are several smaller electric
arc furnace melt shops that also produce specialty steel. The major competitors
of the Company in the special shapes market served by PRP include Rathbone
Precision Metals, Inc., a subsidiary of Carpenter Technology Corporation;
Precision Shapes, Inc.; and J.T. Slocomb Company.

Competition in the Company's markets is based upon product quality, delivery
capability, customer service and price. Maintaining high standards of product
quality while keeping production costs at competitive levels is essential to the
Company's ability to compete in its markets. The ability of a manufacturer to
respond quickly to customer orders currently is, and is expected to remain,
important in the specialty steel market. The Company believes its universal
rolling mill provides it with a competitive advantage as the only domestic mill
that can produce both long product and flat rolled product. The Company
believes it has the ability to fill customers' orders in a shorter lead time for
delivery of those products than a fully-integrated specialty steel mill
currently can achieve, which provides it with another competitive advantage.
The short lead time may also enable the Company to avoid maintaining a high
level of inventory of raw materials, thereby reducing the Company's cost of
production.

The domestic specialty steel industry is frequently affected by general economic
conditions. Further, the Company also faces competition from producers of
certain materials, particularly aluminum, composites and plastics, that compete
with steel in many markets. In addition, many of the finished products sold by
the Company's customers are in direct competition with finished products
manufactured by foreign sources, which may affect the demand for those
customers' products. Any competitive factor that adversely affects the market
for finished products manufactured by the Company's customers could indirectly
adversely affect the demand for the Company's specialty steel products.

Employee Relations

The Company considers the maintenance of good relations with its employees to be
important to the successful conduct of its business. The Company has profit-
sharing plans for certain salaried employees and all of its United Steel Workers
of America (USWA) employees and has equity ownership programs for all of its
eligible employees, in an effort to forge an alliance between its employees
interests and those of the Company's stockholders. At December 31, 1998, the
Company had 224 employees at its Bridgeville facility and 56 employees at its
Titusville facility, of whom 176 and 47 were USWA members located in Bridgeville
and Titusville, respectively.

In August 1997, the Company and the USWA completed negotiation of a new five-
year comprehensive collective bargaining agreement (the "Bridgeville CBA") that
recognizes the USWA as the exclusive representative for the Company's hourly
Bridgeville employees with respect to the terms and conditions of their
employment. The basic structure of the Bridgeville CBA is similar to the
original four-year agreement which contained certain wage, benefit and work rule
terms which permitted the Company to be competitive in the domestic specialty
steel industry.

In connection with the June 1995 acquisition of the Titusville facility the
Company entered into a five-year collective bargaining agreement with the USWA
covering employees at the Titusville facility (the "Titusville CBA"). The
Titusville CBA contains substantially similar terms to those included in the
Bridgeville CBA, but each of the agreements is separate and neither agreement is
conditioned on the renewal of or compliance with the other agreement.

The Company has profit-sharing plans that cover certain salaried employees and
all hourly employees. The profit-sharing plans provide for the sharing of pre-
tax profits in excess of specified amounts. The Company maintains separate
401(k) retirement plans for its hourly and salary employees. Pursuant to each
plan, participants may elect to make pre-tax contributions to the plan, subject
to certain limitations imposed under the Internal Revenue Code of 1986, as
amended (the "Code"). Company matching contributions are not permitted under the
plans. In addition, the Company is required to make semi-annual contributions
to the plans based on service. The Company also provides life insurance and
health coverage for its hourly and salary employees.

Armco Agreement

Armco, the former owner of certain assets of the Company, retained
responsibility for any employee benefit obligations existing prior to August 15,
1994 with respect to persons previously employed at the Bridgeville facility. In
addition, Armco agreed to indemnify the Company up to $3.0 million in the
aggregate with respect to any such liabilities that may arise prior to August
15, 2004.

Employee Stock Purchase Plan

Under the 1996 Employee Stock Purchase Plan (the "Plan"), the Company is
authorized to issue up to 90,000 shares of Common Stock to its full-time
employees, nearly all of whom are eligible to participate. Under the terms of
the Plan, employees can choose as of January 1 and July 1 of each year to have
up to 10% of their total earnings withheld to purchase up to 100 shares of the
Company's Common Stock each six-month period. The purchase price of the stock
is 85% of the lower of its beginning-of-the-period or end-of-the-period market
prices.

Safety

The Company has established and seeks to maintain appropriate safety standards
and policies for its employees. To encourage plant safety, the USWA Agreements
provide that employees will be entitled to receive ratably 50% of the savings,
if any, of reduced workers' compensation premiums obtained due to reductions in
the state experience modifier issued to the Company.

Executive Officers

The following table sets forth, as of December 31, 1998, certain information
with respect to the executive officers of the Company:

NAME (AGE) EXECUTIVE OFFICER SINCE POSITION

Clarence M. McAninch (63) 1994 President and Chief Executive Officer
A. Bruce Kennedy (40) 1998 Vice President, Operations
Paul McGrath (47) 1997 Director of Employee Relations,
General Counsel and Secretary
Richard M. Ubinger (39) 1994 Chief Financial Officer, Principal
Accounting Officer and Treasurer

Clarence M. McAninch, 63, has been President and Chief Executive Officer and a
Director of the Company since July 1994. Mr. McAninch served as Vice President,
Sales and Marketing, of the Stainless and Alloy Products Division of Armco Inc.
from 1992 to 1994.

A. Bruce Kennedy, 40, has been Vice President, Operations since August 1998.
Mr. Kennedy was employed by Kurtz Steel Company for the previous 17 years, most
recently as President and Chief Executive Officer from January 1991 to May 1998.

Paul A. McGrath, 47, has been General Counsel and Director of Employee Relations
since January 1995 and was appointed Secretary in May 1996. Prior thereto, he
was employed by Westinghouse Electric Corporation for approximately 24 years in
various management positions.

Richard M. Ubinger, 39, has been Chief Financial Officer and Principal
Accounting Officer of the Company since August 1994, and was appointed Assistant
Secretary in November 1995 and Treasurer in May 1996. From 1981 to 1994, Mr.
Ubinger was employed by Price Waterhouse LLP (currently known as
PricewaterhouseCoopers LLP) in its audit department, and he served in the
capacity of Senior Manager for Price Waterhouse LLP since 1990. Mr. Ubinger is
a Certified Public Accountant.

Patents and Trademarks

The Company does not consider its business to be materially dependent on patent
or trademark protection, and believes it owns or maintains effective licenses
covering all the intellectual property used in its business. The Company seeks
to protect its proprietary information by use of confidentiality and non-
competition agreements with certain employees.

Risk Factors

The Company's business and results of operations are subject to a wide range of
substantial business and economic factors including, but not limited to the
factors discussed below, many of which are not within the Company's control.

Significant Customer and Concentrated Customer Base

For the year ended December 31, 1998, the Company's largest customer, Talley
Metals Technology, Inc., a subsidiary of Carpenter Technology Corporation, and
its affiliates accounted for approximately 35% of the Company's net sales. The
Company's five largest customers in the aggregate accounted for approximately
57% of net sales. An adverse change in, or termination of, the Company's
relationship with one or more of its major customers or one or more of its
market segments could have a material adverse effect upon the Company. In
addition, a number of the Company's customers are also competitors of the
Company. See "Business--Customers" and "Business--Competition".

Reliance on Critical Manufacturing Equipment

The Company's manufacturing processes are dependent upon certain critical pieces
of specialty steelmaking equipment, such as the Company's electric arc-furnace
and universal rolling mill. In the event a critical piece of equipment should
become inoperative as a result of unexpected equipment failure, there can be no
assurance that the Company's operations would not be substantially curtailed
which may have a negative effect on the Company's financial results. See
"Properties."

Competition

The Company competes with domestic and foreign sources of specialty steel
products. In addition, many of the finished products sold by the Company's
customers are in direct competition with finished products manufactured by
foreign sources, which may affect the demand for those customers' products. Any
competitive factor that adversely affects the market for finished products
manufactured by the Company's customers could indirectly adversely affect the
demand for the Company's semi-finished products. Additionally, the Company's
products compete with products fashioned from alternative materials such as
aluminum, composites and plastics, the production of which includes domestic and
foreign enterprises. Competition in the Company's field is intense and is
expected to continue to be so in the foreseeable future. There can be no
assurance that the Company will be able to compete successfully in the future.
See "Business--Competition."

Environmental Issues

The Company is subject to demanding federal, state and local environmental laws
and regulations ("Environmental Laws") governing, among other things, air
emissions, waste water discharge and solid and hazardous waste disposal. The
Company leases or owns certain real property and operates equipment previously
owned and used in the manufacture of steel products by Armco. In connection
with the acquisition of the Bridgeville facility assets, Armco agreed to retain
responsibility for certain liabilities asserted against Armco under
Environmental Laws. Because the indemnification is the Company's exclusive
remedy against Armco for a given environmental liability, the Company will be
materially dependent upon that indemnity should any environmental liability
arise. There can be no assurance that the indemnities from Armco will fully
cover any or all environmental liabilities, and there can be no assurance that
the Company will have the financial resources to discharge the liabilities if
legally compelled to do so.

Environmental laws and regulations have changed rapidly in recent years, and the
Company may be subject to increasingly stringent environmental standards in the
future. The Armco indemnities do not cover liability with respect to violations
of Environmental Laws or the existence of environmental conditions stemming from
any changes, modifications or amendments to Environmental Laws effective after
August 15, 1994, with respect to the Bridgeville facility, or effective after
June 2, 1995, with respect to the Titusville facility, and there is no assurance
that the Company will not incur any such liability. See "Properties--
Environmental Compliance."

Supply of Raw Materials and Cost of Raw Materials

The Company relies on a limited number of suppliers, some of which are foreign
owned, for its raw material needs which currently account for approximately 45%
of the Company's total cost of products sold. Raw material prices are
affected by cyclical, seasonal and other market factors. In addition, the
supply of premium grades of scrap metal used by the Company is more limited than
the supply of lower grades of scrap metal. Further, nickel and chrome, key
ingredients in certain alloys produced by the Company and significant cost
components, are available substantially only from foreign sources, some of which
are located in countries that may be subject to unstable political and economic
conditions. Those conditions might disrupt supplies or affect the prices of the
raw materials used by the Company. The Company does not maintain long-term
supply agreements with any of its independent suppliers. If its supply of raw
materials were interrupted, the Company might not be able to obtain sufficient
quantities of raw materials, or obtain sufficient quantities of such materials
at satisfactory prices, which, in either case, could adversely affect the
Company's results of operations. In addition, significant increases in the

price of the Company's principal raw materials could adversely affect the
Company's financial results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Raw Materials."

Year 2000 Readiness Disclosure

The following statements are provided pursuant to the provisions of the Year
2000 Information and Readiness Disclosure Act of 1998.

Since inception in August 1994, the Company has been engaged in a program to
modernize and replace its computerized production control and management
information systems. Although not the primary purpose of the program, the new
systems were designed to avoid any Year 2000 problems that might otherwise
arise. In addition, the Company has identified and tested all other critical
pieces of equipment and has not identified any non-compliance issues internally.
Therefore, the Company believes that its internal systems will be Year 2000
compliant in all material respects without incurring significant expenditures.
Any expenditures will be financed with cash from operations.

The Company currently believes the most significant impact of the Year 2000
issue could be an interrupted supply of goods and services from the Company's
vendors and interrupted supply of orders from the Company's customers. In order
to assess the state of readiness, surveys have been sent to all major vendors
and customers to determine the current status of their Year 2000 evaluation.
Responses have been received from approximately 70 percent of these vendors and
customers in which each respondent has confirmed that efforts to become Year
2000 compliant are, at a minimum, in process. Due to the uncertainties
associated with the ability of critical vendors and customers to resolve any
known or unknown Year 2000 compliance issues, the Company may experience a
material adverse effect on future results of operations if such issues are not
resolved. While no contingency plans have been established at the present time,
contingency plans will be developed to mitigate any risk identified.

ITEM 2. PROPERTIES

The Company leases its Bridgeville facility from Armco (the "Armco Lease") and
owns the Titusville facility. The Bridgeville facility is leased pursuant to a
long-term lease from Armco for ten years from August 15, 1994, which includes
the payment by the Company of real and personal property taxes, water and sewage
charges, special assessment and insurance premiums associated therewith, with
three five-year options to renew on the same terms at the sole discretion of the
Company. The Armco Lease provides the Company with an option to purchase
substantially all of the leased premises for $1 any time during the term of the
Armco Lease prior to August 15, 2015. The building that houses the electro-slag
remelting equipment, which is nearby, but not contiguously located, to the other
facilities, is included in the ten-year initial lease term only. The Company
anticipates relocating the equipment it owns in that facility in close proximity
to the melt shop complex in an existing building prior to the expiration of that
initial ten-year term. The Armco Lease is assignable with the written consent
of Armco, which consent cannot be unreasonably withheld. The Company is
responsible for compliance with all environmental laws related to the property
subsequent to August 15, 1994, subject to liabilities Armco retained and
indemnification obligations under the asset agreement related to the Bridgeville
facility (the "Asset Agreement").

In early 1999, the Company successfully completed the round-bar finishing
facility at the Bridgeville location. The facility includes heat treating and
processing equipment which enables the Company to produce completely finished 2-
inch to 6-inch round bar products.

The Bridgeville facility consists of approximately 600,000 square feet of floor
space on approximately 50 acres. The Bridgeville facility contains melting,
electro-slag remelting, conditioning, rolling, annealing and various other
processing equipment. Substantially all products shipped from the Bridgeville
facility are processed through its melt shop and universal rolling mill
operations.

The Titusville facility consists of approximately 10 acres and includes seven
separate buildings, including two principal buildings of approximately 265,000
square feet in total area. The Titusville facility contains vacuum-arc
remelting and various rolling and finishing equipment.

Specialty steel production is a capital intensive industry. The Company
believes that its facilities and equipment are suitable for its present needs.
The Company believes, however, that it will continue to require capital from
time to time to add new equipment and to repair or replace existing equipment to
remain competitive and to enable it to manufacture quality products and provide
delivery and other support service assurances to its customers.

Environmental Compliance

The Company is subject to Environmental Laws, including those governing
discharges of pollutants into the air and water, the generation, handling and
disposal of solid and hazardous substances and the remediation of contamination
associated with generation, handling and disposal activities. The Company is
subject periodically to environmental compliance reviews by various regulatory
offices. Additionally, the Company monitors its compliance with Environmental
Laws applicable to it and, accordingly, believes that it is currently in
compliance with all laws and regulations in all material respects. The Company
has not made to date and does not anticipate making any significant expenditures
for environmental control facilities, but could incur costs, which may be
significant, related to environmental compliance at any time or from time to
time in the future.

Bridgeville Facility

The Company has not incurred to date and does not anticipate incurring any
remediation costs from environmental conditions at the Bridgeville facility.
The Company does not expect that any remediation that may be required at the
Bridgeville facility will have a material adverse effect on the Company's
results of operations, liquidity or financial condition. The Company operates
production and processing equipment, which it owns, on real property that is
leased from Armco. Armco remains contractually obligated for environmental
matters, including compliance with laws governing the removal of hazardous
materials and the elimination of hazardous conditions, which stem from any
operations or activities at the leased Bridgeville facility prior to August 15,
1994. In addition, Armco has agreed to indemnify the Company against any
liability arising as a result of any of those matters with respect to the
Bridgeville facility to the extent of $6.0 million in the aggregate until 2004
and has further agreed (subject to the indemnity limits) to pay up to $250,000
for each 30-day period and up to $1.0 million in reimbursement for certain non-
recoverable operating costs should the Company's business be interrupted by
reason of matters arising under Environmental Laws that stem from occurrences
prior to August 15, 1994. Except as required by law or for the protection of
public health or the safety of its employees, the Company is contractually
prohibited from taking voluntary or discretionary action to accelerate or delay
the timing, or increase the cost of, Armco's environmental obligations with
respect to the Bridgeville facility. Prior to entering into the Asset
Agreement, Armco and the Company identified certain environmental conditions
existing at the Bridgeville facility, including asbestos in various structures,
oils and electrical devices containing PCBs, that Armco or the Company has
remediated at Armco's expense. The Company's Bridgeville facility includes an
overhead and rooftop system (the "bag house") to remove waste gases generated by
its melting operations. The bag house facility associated with that system
collects oxides and non-metallic residue for reclaiming purposes. An
independent reclaiming contractor purchases the oxides and non-metallic residue,
removes the residue and converts it into metallic form for sale back to the
Company as scrap metal. This reclaiming process enables the Company to dispose
of the unwanted residue, while at the same time recovering some raw materials
for the manufacture of specialty steel.

Titusville Facility

The Company operates its production and processing equipment that was acquired
from Armco on real property the Company owns. Armco has agreed to indemnify the
Company to the extent of $3.0 million in the aggregate against liability for
environmental matters, including compliance with laws governing the

removal of hazardous materials and the elimination of hazardous conditions,
which pertain to environmental conditions existing on or under the Titusville
facility prior to June 2, 1995. In addition, Armco has agreed to indemnify the
Company for any liabilities arising out of environmental conditions existing
offsite as of June 2, 1995, and that indemnification is not subject to the $3.0
million limitation. In connection with the acquisition of the Titusville
facility, the Company conducted a Phase I and Phase II environmental study (the
"Study") of the parcel of real estate acquired, and the Company believes the
amount and terms of Armco's indemnity are sufficient to protect the Company
against environmental liabilities arising at the Titusville facility from
environmental conditions existing as of June 2, 1995. The Study revealed
asbestos in certain areas adjacent to the Titusville facility, which Armco has
remediated at its expense, and some electrical equipment containing PCBs that
the Company is remediating at its expense, which is not material. Additionally,
the Study noted that as is typical of the Titusville, Pennsylvania area
generally, there is regional soil and groundwater hydrocarbon contamination
present at above applicable cleanup standards, reflecting the fact that this
area contains natural petroleum deposits and that petroleum refining operations
had been conducted nearby. Any contamination of this type on the Company's
property flows from outside its boundaries, to the extent it is not indigenous
to the underlying ground. The Company believes it unlikely that it or Armco will
be required to provide cleanup at the Titusville facility for the local
hydrocarbon contamination or, if it were, the Company believes this action would
be part of a large program addressing the entire area. To date, the Company has
not been contacted by any environmental governmental authority concerning this
matter. Notwithstanding Armco's indemnification obligations with respect to the
Titusville facility, if the Company accelerates the timing or increases the cost
of any environmental obligation retained by Armco except as required by law or
for the protection of public health or the safety of its employees, the Company
shall bear such accelerated or increased cost. If the Company accelerates the
timing or increases the cost of any environmental obligation retained by Armco
with respect to the Titusville facility as a result of seeking financing or the
sale of less than a controlling interest in the voting stock of the Company,
such accelerated or increased cost shall be borne equally by Armco and the
Company. Certain processes that were employed by Armco, and certain facilities
used by Armco that may have involved or been the site of activities that could
have caused environmental pollution at the Titusville facility, are not employed
or used by the Company. There may be other environmental conditions that have
not been identified by regulatory authorities but which may later be determined
to require remediation.

The Company's exclusive remedies for reimbursement from Armco for losses
stemming from pre-closing environmental conditions at each of the Bridgeville
facility and the Titusville facility are the indemnities agreed to with respect
to each of the facilities. There can be no assurance that those indemnities
will fully cover all environmental liabilities, especially if the relevant
regulatory authorities or others were to proceed solely against the Company with
respect to those liabilities at the Bridgeville facility that arise out of
conditions existing prior to the commencement of the Armco Lease on August 15,
1994 (an event the Company believes is unlikely), and there can be no assurance
that the Company will have the financial resources to discharge those
liabilities if legally compelled to do so. See "Risk Factors--Environmental
Issues."

Based on the foregoing and the experience of its senior executives with respect
to both Armco's and the Company's facilities and the equipment and processes
employed at the Bridgeville facility, and the results of the Phase I and Phase
II environmental study of the Titusville facility, the Company believes the
amount and terms of the Armco indemnities are sufficient to protect the Company
against environmental liabilities arising from environmental conditions prior to
August 15, 1994, with respect to the Bridgeville facility, and prior to June 2,
1995, with respect to the Titusville facility.

ITEM 3. LEGAL PROCEEDINGS

There are no material legal proceedings pending or, to the Company's best
knowledge, threatened against the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of 1998.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS

At December 31, 1998, a total of 6,320,036 shares of the Company's Common Stock,
par value $.001 per share, were issued and outstanding, and held by
approximately 211 holders of record.

Certain holders of Common Stock and the Company are party to a stockholder
agreement. That agreement maintains in effect certain registration rights
granted to non-management stockholders, which provides to them two demand
registration rights exercisable at any time upon written request for the
registration of Restricted Shares of Common Stock having an aggregate net
offering price of at least $5,000,000 (the "Registrable Securities").

Price Range of Common Stock

The information called for by this item is set forth on page 35 of the Annual
Report to Stockholders for the year ended December 31, 1998, which is
incorporated herein by reference.

Preferred Stock

The Company's Certificate of Incorporation provides that the Company may, by
vote of its Board of Directors, issue the Preferred Stock in one or more series
having the rights, preferences, privileges and restrictions thereon, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series or designation of such series, without further vote or
action by the stockholders. The issuance of Preferred Stock may have the effect
of delaying, deferring or preventing a change in control of the Company without
further action by the stockholders and may adversely affect the voting and other
rights of the holders of Common Stock. The issuance of Preferred Stock with
voting and conversion rights may adversely affect the voting power of the
holders of Common Stock, including the loss of voting control to others.

The Company has no outstanding Preferred Stock and has no plans to issue any of
the authorized Preferred Stock.

Dividends

The Company has never paid a cash dividend on its Common Stock and currently has
no plans to pay dividends in the foreseeable future. Restrictions contained in
the Company's Credit Agreement with PNC currently prohibits the payment of cash
dividends on Common Stock.

ITEM 6. SELECTED FINANCIAL DATA

The information called for by this item is set forth on page 36 of the Annual
Report to Stockholders for the year ended December 31, 1998, which is
incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The information called for by this item is set forth on pages 15 through 19 of
the Annual Report to Stockholders for the year ended December 31, 1998, which
are incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Prices for the Company's raw materials are subject to frequent market
fluctuations. The Company does not maintain long term supply agreements for its
raw material needs. Raw material price increases are normally off-set by
selling price increases and surcharges.

The Company is exposed to market risk from changes in interest rates related to
its long-term debt. At December 31, 1998, the Company's total long-term debt,
including the current portion was $12,958,000. Of that amount, $2,958,000 has
fixed rates and $10,000,000 bears a variable rate. Assuming a 10% increase in
interest rates on the Company's variable rate (an increase from the December 31,
1998 interest rate of 6.34% to an interest rate of 6.98%), annual interest
expense would be approximately $63,000 higher based on the December 31, 1998
balance of variable rate debt.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information called for by this item is set forth on pages 21 through 34 of
the Annual Report to Stockholders for the year ended December 31, 1998, which
are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The information concerning the directors of the Company is set forth in the
Proxy Statement (the "Proxy Statement") to be sent to stockholders in connection
with the Company's Annual Meeting of Stockholders to be held on May 25, 1999,
under the heading "Proposal No. 1--Election of Directors," which information is
incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information concerning executive compensation is set forth in the Proxy
Statement under the heading "Executive Compensation," which information is
incorporated by reference. With the exception of the information specifically
incorporated herein by reference, the Company's Proxy Statement is not to be
deemed filed as part of this report for the purposes of this Item.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information concerning security ownership of certain beneficial owners and
management is set forth in the Proxy Statement under the heading "Security
Ownership of Certain Beneficial Owners and Management," which information is
incorporated by reference. With the exception of the information specifically
incorporated herein by reference, the Company's Proxy Statement is not to be
deemed filed as part of this report for the purposes of this Item.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this Annual Report on
Form 10-K:

1) Consolidated Financial Statements:

The consolidated financial statements, together with the report thereon of
PricewaterhouseCoopers LLP, appearing on pages 20 through 34 of the
accompanying Annual Report, are incorporated by reference in this Form 10-K
Annual Report.

2) Consolidated Financial Statement Schedules:

All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and have therefore been
omitted.

3) Exhibits:

Exhibit
- -------

Number Description Page No.
- ------- ----------- --------

2.1 Certificate of Merger, dated July 29, 1994, between Universal Stainless & Alloy Products, Inc., a Pennsylvania
Corporation, and the Company (incorporated herein by reference to Exhibit 2.1 to Registration No. 33-85310).
2.2 Agreement and Plan of Merger, dated July 28, 1994, among Universal Stainless & Alloy Products, Inc., a
Pennsylvania Corporation, and the Company (incorporated herein by reference to Exhibit 2.2 to Registration No.
33-85310).
2.3 Asset and Real Property Purchase Agreement, dated as of June 2, 1995, by and between Armco Inc. and the Company
(incorporated herein by reference to Exhibit 2.3 to Registration No. 33-97896).
3.1 Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to
Registration No. 33-85310).
3.2 By-laws of the Company (incorporated herein by reference to Exhibit 3.2 to Registration No. 33-85310).
4.1 Specimen copy of Stock Certificate for shares of Common Stock (filed herewith).
4.2 Form of Representative's Warrant Agreement (including Form of Representative's Warrant Certificate) (incorporated
herein by reference to Exhibit 4.2 to Registration No. 33-85310).
10.1 Stockholders Agreement, dated as of August 1, 1994, by and among the Company and its existing stockholders
(incorporated herein by reference to Exhibit 10.8 to Registration No. 33-85310).
10.2 Asset Purchase Agreement, dated August 15, 1994, by and between the Company and Armco Inc., as amended by letter
agreement, dated October 5, 1994, by and between the Company and Armco, Inc. (incorporated herein by reference to
Exhibit 10.12 to Registration No. 33-85310).
10.3 Lease Agreement, dated August 15, 1994, by and between Armco Inc. and the Company (incorporated herein by
reference to Exhibit 10.9 to Registration No. 33-85310).
10.4 Security Agreement, dated August 15, 1994, by and between the Company and Armco Inc. (incorporated herein by
reference to Exhibit 10.21 to Registration No. 33-85310).
10.5 Employment Agreement, dated November 20, 1998 by and between the Company and Clarence M. McAninch (filed
herewith).

EXHIBIT
- -------

NUMBER DESCRIPTION PAGE NO.
- ------ ----------- -------

10.6 Employment Agreement, dated August 15, 1998, by and between the Company and Daniel J. DeCola, Sr. (filed
herewith).
10.7 Employment Agreement, dated August 1, 1998, by and between the Company and A. Bruce Kennedy (filed herewith).
10.8 Employment Agreement dated January 1, 1998 between the Company and Paul McGrath (incorporated herein by reference
to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997).
10.9 Employment Agreement dated January 1, 1998 between the Company and Richard M. Ubinger (incorporated herein by
reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997).
10.10 1994 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.25 to Registration No. 33-85310).
10.11 Collective Bargaining Agreement, dated May 3, 1995, by and between the Company and United Steelworkers of America
(incorporated herein by reference to Exhibit 10.42 to Registration No. 33-97896).
10.12 Collective Bargaining Agreement, dated September 1, 1997, by and between the Company and United Steelworkers of
America (incorporated herein by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997).
10.13 Credit Agreement, dated as of January 30, 1998, between the Company and PNC Bank, National Association, with
Exhibits and Schedules (incorporated herein by reference to Exhibit 10.13 to the Company's Annual Report on Form
10-K for the year ended December 31, 1997).
10.14 Security Agreement and Collateral Assignment, dated as of January 30, 1998, by and between the Company and PNC
Bank, National Association (incorporated herein by reference to Exhibit 10.14 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997).
10.15 Note, dated as of January 30, 1998, by and between the Company and PNC Bank, National Association (incorporated
herein by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended December 31,
1997).
10.16 Landlord's Waiver, dated as of January 30, 1998, by Armco Inc (incorporated herein by reference to Exhibit 10.16
to the Company's Annual Report on Form 10-K for the year ended December 31, 1997).
10.17 Open-End Leasehold Mortgage, Collateral Assignment and Security Agreement dated as of January 30, 1998, by the
Company in favor of PNC Bank, National Association (incorporated herein by reference to Exhibit 10.17 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997).
10.18 First Amendment to Credit Agreement, dated as of December 31, 1998, between the Company and PNC Bank, National
Association (filed herein).
10.19 Supply Contract Agreement, dated as of January 1, 1999, between the Company and Talley Metals Technology, Inc. a
subsidiary of Carpenter Technologies, Inc. (filed herein).
10.20 Loan Agreement, dated October 3, 1995, by and between the Company and Commonwealth of Pennsylvania (incorporated
herein by reference to Exhibit 10.47 to Registration No. 33-97896).
10.21 Note, dated October 3, 1995, for the principal sum of $500,000, by the Company, in favor of the Commonwealth of
Pennsylvania (incorporated herein by reference to Exhibit 10.48 to Registration No. 33-97896).

EXHIBIT
- -------
NUMBER DESCRIPTION PAGE NO.
- ------ ----------- -------

10.22 Security Agreement, dated October 3, 1995, by and between the Company and the Commonwealth of Pennsylvania
(incorporated herein by reference to Exhibit 10.48 to Registration No. 33-97896).
10.23 Underwriting Agreement, dated December 14, 1994, among the Company and Keane Securities Co., Inc., as
representatives of the several underwriters (incorporated herein by reference to Exhibit 10.52 to Registration
No. 33-85310).
10.24 Equipment Purchase Agreement dated as of November 6, 1997 between the Company and Hetran, Inc. for the purchase of
certain bar finishing equipment (incorporated herein by reference to Exhibit 10.27 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997).
13.01 Selected pages of the Company's 1998 Annual Report to Shareholders incorporated by reference into Parts II and
III of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.
23.01 Consent of PricewaterhouseCoopers LLP.
24.01 Powers of Attorney (included on the signature page hereto).
27.01 Financial Data Schedule

(b) The following reports on Form 8-K were filed during the fourth quarter of
1998:

The Company's Current Reports on Form 8-K, dated October 19, 1998 and
November 25, 1998.

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, on March
30, 1999.

Universal Stainless & Alloy Products, Inc.

By: /s/ C. M. McAninch
--------------------------------------
Clarence M. McAninch
President and Chief Executive Officer

Power of Attorney

Each of the officers and directors of Universal Stainless & Alloy Products,
Inc., whose signature appears below in so signing also makes, constitutes and
appoints Clarence M. McAninch and Paul A. McGrath, and each of them acting
alone, his true and lawful attorney-in-fact, with full power of substitution,
for him in any and all capacities, to execute and cause to be filed with the
Securities Exchange Commission any and all amendment or amendments to this
Report on Form 10-K, with exhibits thereto and other documents connected
therewith and to perform any acts necessary to be done in order to file such
documents, and hereby ratifies and confirms all that said attorney-in-fact or
his substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.

Signature Title Date
- --------- ----- ----

/s/ C. M. McAninch
- ------------------------------------ President, Chief Executive Officer March 30, 1999
Clarence M. McAninch and Director

/s/ Richard M. Ubinger
- ------------------------------------ Chief Financial Officer and Treasurer, March 30, 1999
Richard M. Ubinger (Principal Accounting Officer)

/s/ Douglas M. Dunn
- ------------------------------------ Director March 30, 1999
Douglas M. Dunn

/s/ George F. Keane
- ------------------------------------ Director March 30, 1999
George F. Keane

/s/ Udi Toledano
- ------------------------------------ Director March 30, 1999
Udi Toledano

/s/ D. Leonard Wise
- ------------------------------------ Director March 30, 1999
D. Leonard Wise